Final Exam

HOS 470 Summer 2014

Name: ________________________________
Points

Problem
1

Your property is financed with 60% debt and 40% equity. The return on assets is equal to 12%.
The current borrowing rate is 7.0%. The property cost is $22,000,000 and the mortgage is a
20 year mortgage.

a. What is the annual profit from operations?

Not just interest!
b. What is the debt service payment?
c. What is the amount of funds available for return on equity?
d. What is the current return on equity?
e. If you increased the borrowing to 75% of the value of the property and the interest rate
went up to 7.5%, what would the debt service be?
f.
g.

What would be available to the investor at the new borrowing rate?

What would the return on equity be? (%)

You are planning for your retirement. You calculate that on retirement you will live for another
22 years and will need an income of $55,000 per year. Assume invested funds will earn 6.5%
annually over the entire period covered by this problem.

a. How much would you have to have on your retirement date? $___________________
b. You start saving now and can retire in 30 years. How much should you put aside each year to
have the funds available? ________________________
c. How about if you arent making enough money at the present to fund the retirement amount,
and wait 10 years, how much would you need to put aside each year starting in ten years?$ ____________
d. How about if you put $10,000 aside for the first 10 years, how much would you have to put in
each year after that (starting in year 11) to have the required amount when you retire?_________________

3
Analysis Problems:
Kendall Hotel
Chicago, Illinois
STATEMENT OF ESTIMATED ANNUAL OPERATING RESULTS
FOR A TYPICAL YEAR OF OPERATION IN 2013 DOLLARS
BASED ON 250 AVAILABLE ROOMS.
PERCENTAGE OF OCCUPANCY
AVERAGE DAILY RATE

72%
$195.00

REVENUES:
ROOMS
FOOD
BEVERAGE
TELEPHONE
RENTALS & OTHER INCOME
OTHER OPERATED DEPTS

AMOUNT
$12,812,000
2,600,000
650,000
56,000
329,000
657,000

TOTAL REVENUE

$17,104,000

RATIO
74.90%
15.20%
3.80%
0.30%
1.90%
3.80%

Amount/
Room
$51,248
10,400
2,600
224
1,316
2,628

100.00%

$68,416

DEPARTMENTAL EXPENSES (1):

ROOMS
FOOD & BEVERAGE
TELEPHONE
OTHER OPERATED DEPTS

$4,100,000
2,665,000
98,000
788,000

32.00%
82.00%
175.00%
119.90%

$16,400
10,660
392
3,152

TOTAL

$7,651,000

44.70%

$30,604

TOTAL OPERATED INCOME

$9,453,000

55.30%

$37,812

UNDISTRIBUTED EXPENSES:
ADMINISTRATIVE & GENERAL
MANAGEMENT FEE (2)
MARKETING
FRANCHISE FEES (3)
PROPERTY OPERATION & MAINT.
ENERGY

$2,125,000
599,000
250,000
512,000
125,000
875,000

12.40%
3.50%
1.50%
3.00%
0.70%
5.10%

TOTAL

$4,486,000

26.20%

$17,944

INCOME BEFORE FIXED CHARGES

$4,967,000

29.00%

$19,868

FIXED CHARGES:
REAL ESTATE & PROPERTY TAXES
BUILDING & CONTENTS INSURANCE
TOTAL
INCOME BEFORE RESERVE

$1,300,000
112,500
$1,413,000
$3,554,000

7.60%
0.70%
8.30%
20.80%

$5,200
450
$5,650
$14,218

$855,000

5.00%

$3,420

$2,699,000

15.80%

$10,798

RESERVE FOR REPLACEMENT

INCOME BEFORE OTHER DEDUCTIONS (5)

The information on a hotel operations from above is presented to you. Comment

on the operation based on your knowledge of the industry and typical ratios from STRs Host Report.
You should identify at least four significant areas that would raise questions in an investor/owners
mind.
a. _________________________________________________________________
b. _________________________________________________________________

$8,500
2,396
1,000
2,048
500
3,500

c. _________________________________________________________________
d. _________________________________________________________________
4

The cost of food sold for this property is $1,092,000 for the year. Comment on this cost area?
a. % of food revenue
b. Your observation?_________________________________________________
c. The inventory level is $44,630. Calculate the days on hand
Comment:____________________________________________________

Days

This property carries an accounts receivable balance of $2,850,000. Is this a reasonable level?
Days
a. Days of receivable:
b. Your Comments:____________________________

6 The manager of the property is doing some cash forecasting and determines he wont have
enough money to make his payroll at the end of the month. Give three strategies that he
might use to be able to cover the cost of the payroll.
a. ___________________________________
b. ___________________________________
c. ___________________________________

7
250 Room Hotel
Assume Annual: Occupancy
Revenue:
Fixed Cost:
Fixed Cost Portion
Rooms:
Fixed Cost Portion
Admin/OH
Fixed Costs
Profit
Total
Variable Cost?

75%
Dollars
% 0f Current Volume
18%
28%
15%
25%
86%
Percent

ADR

$225

Dollars
Dollars
Dollars
Dollars
Dollars

CM per Room Sold

B/E Volume:
B/E Rooms Sold

Your corporation borrows $20,000,000 at 6% interest. The corporate income tax

rate for the corporation is 20%. What is the effective annual interest rate? _______%

Explain why there is a difference between the actual interest rate and
the effective interest rate: _______________________________________________________

You borrow $250,000 on a 10 year mortgage to buy a house. You are offered the choice between
7.5% interest with monthly payments and 7.75% interest with only an annual payment due.
a.

What is the total annual amount paid on the loan for:

i. Monthly payment schedule: $________________
ii. Annual payment schedule: $________________
b. Why is there a difference when the loan amount is the same in either case?
c. How does the interest rate affect the total payments made?
d. How does the frequency of payments affect the total payments made?

10

You invest $40,000 at 6% interest. How long will it take to double your money? ______years.